Hancock Whitney Corp (HWC) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Hancock Holding Company's Third Quarter 2017 Earnings Conference Call.

As a reminder, this call is being recorded.

I would now like to turn the call over to Trisha Carlson, Investor Relations Manager.

You may begin.

Thank you, and good morning.

During today's call, we may make forward-looking statements.

We would like to remind everyone to review the safe harbor language that was published with yesterday's release and presentation and in the company's most recent 10-K, including the risks and uncertainties identified therein.

Hancock's ability to accurately project results or predict the effects of future plans or strategies or predict market or economic development is inherently limited.

We believe that the expectations reflected or implied by any forward-looking statement are based on reasonable assumptions, but our actual results and performance could differ materially from those set forth in our forward-looking statements.

Hancock undertakes no obligation to update or revise any forward-looking statement, and you are cautioned not to place undue reliance on such forward-looking statements.

In addition, some of the remarks this morning contain non-GAAP financial measures.

You can find reconciliations to the most comparable GAAP measures in our earnings release and financial tables.

The presentation slides included in our 8-K are also posted with the conference call webcast link on the Investor Relations website.

We will reference some of these slides in today's call.

Participating in today's call are John Hairston, President and CEO; Mike Achary, CFO; and Sam Kendricks, Chief Credit Risk Officer.

I will now turn the call over to John Hairston.

Thanks, Trisha, and good morning, everyone.

Thanks for dialing in this morning.

We're very pleased to report another quarter of progress reflecting the culmination of hard work and focused determination to deliver results we expect this company can produce.

While we're pleased with the achievements thus far, we still have work to do and remain relentlessly focused on improving company performance in the future.

Now let's review a few accomplishments detailed on Slide 19.

We previously disclosed our corporate strategic objectives for 2017 and '18 with a goal to attain them no later than the end of year '18.

The 2 FNBC acquisitions enhanced the pace of improvement and have allowed us to achieve several of our strategic objectives earlier than committed.

Our quarterly EPS target, we'll discuss that first, on an operating basis, was $0.70 to $0.80 or better.

This quarter, we reported EPS of $0.76 per share and are focused on improving results in the future.

Our efficiency ratio target was between 59% and 61%.

This quarter, our efficiency ratio, excluding nonoperating items, is 57.5%.

This efficiency ratio was the best in many years, and we hope shareholders are as pleased to see a mark better than the original goal range as we are.

We just missed attaining our operating ROA target of 1% to 1.1% by reporting an operating ROA of 99 basis points, a narrow miss of 1 bp.

Our TCE ratio increased 15 basis points to 7.80%, a nice increase, but still 20 bps shy of our 8% goal.

We successfully reentered the M&A arena this year and delivered on the previously projected FNBC synergy reductions this quarter.

We're pleased with the success we've seen with integration, with expense reductions, and especially with customer retention for these 2 deals.

While not a specific CSO, I should point out Slide 5 and continued improvement in PPNR.

We believe this is an important measure for analyzing the performance of our business.

We hit our prior goal for this metric last year, and the trend continues to move in the right direction.

PPNR totaled $111 million for the third quarter, up 9% from previous quarter, up 29% from the same quarter a year ago and up 75% from the beginning of 2015 when we reset the structure and direction for our company.

Our team is very proud of the 75% improvement in PPNR in less than 3 years.

All that said, while we're pleased with the results and achievement of several objectives, our work is not done.

We continue to manage our way through the energy cycle and are working to set new objectives upon attainment of our current CSO goals.

As a natural progression of our continued growth and commitment to the future, we announced yesterday that we intend to consolidate our 2 brands sometime during the first half of 2018, of course, subject to any applicable approvals.

The Hancock and Whitney brands have existed since 1899 and 1883, respectively.

We will honor the legacies of both brands and retain their value by combining the 2 names.

Sometime during 2018, we intend to operate as Hancock Whitney Corporation and Hancock Whitney Bank.

We're proud to provide an efficient, common and recognized combined brand across all banking locations and technology platforms next year.

One more thing before I turn the call over to Mike Achary, our CFO.

Our company conducts business in several markets impacted by recent hurricanes.

We dealt with Harvey in Houston and Southwest Louisiana, Irma in Tampa and Jacksonville and Nate in Coastal Mississippi and Alabama.

We're thankful to report that while the number of markets impacting our company was quite high, very few of our clients, employee associates and locations experienced significant flooding damage or disruption.

As a result, our credit quality measures and reported expenses do not include any specific or additional provisionary expenses related to those storms.

I'll now turn the call over to Mike for a few additional comments.

Thanks, John.

Good morning, everyone.

Reported earnings for the company for the third quarter was $0.68 per share.

Included in those results were $11.4 million or $0.08 per share of nonoperating items, bringing our operating EPS for the quarter to $0.76 per share.

So on a reported basis, earnings were up $6.6 million or about 13% from last quarter, while on an operating basis, the improvement was $7.1 million or about 12%.

Both measures represent very good operating leverage improvements from last quarter.

As a reminder, results in the third quarter do include the full impact of both First NBC transactions, so all balance sheet and income statement items are in for a full quarter.

All expense synergies have been achieved, and all merger costs have been taken.

The First NBC transactions are now behind us, and we're moving forward from here.

Total loans for the company increased $312 million or 7% linked quarter annualized, reflecting growth in all markets across our footprint as well as in a few revenue-generating areas such as mortgage and equipment finance.

Included in that net increase is a $97 million reduction in our energy concentration, which now stands at 6% of total loans.

With the admitted fourth quarter headwinds of additional energy paydowns and a bit of a challenging operating environment, we still expect to continue our loan growth momentum and are guiding to end-of-period loan growth of between $250 million and $300 million in the fourth quarter this year.

As we mentioned, our energy portfolio was down almost $100 million from last quarter, while the energy ALLL in the portfolio was up slightly to 7% or a quarter-end balance of almost $80 million.

We did have $3.6 million of energy-related net charge-offs during the quarter.

Specifically, that included gross charge-offs of $7.6 million that were partly offset by recoveries [of about $4 million].

This does bring our cycle-to-date net energy charge-offs total to $68 million, while our overall guidance for net charge-off remains in the range of $65 million to $95 million.

We did also report an $80 million reduction in criticizing our due loans.

However, we did move nondrilling credit to nonaccrual status during the quarter, leading to a slight increase in energy non-accruals.

As mentioned many times before, we continue to experience a lag in the recovery of energy service and support credits to believe our reserve is adequate while our capital remains solid.

The net interest margin for the quarter was 3.44%.

That was up 1 basis point on a linked-quarter basis.

The core NIM was 3.32% and up 3 basis points quarter-over-quarter.

We did expect a bit wider expansion in the NIM during the quarter, but we did also have nearly $1.4 million of interest reversals on nonaccrual loans negatively impact the margin by about 2 basis points.

Also, higher levels of premium amortization, which were up $1.6 million, and a full quarter impact of higher deposit rates partly offset the impact of the June rate hike.

So going forward, we do expect a flattish NIM in the fourth quarter, absent any additional rate hikes.

Fee income for the company came in at $67 million and was down slightly linked quarter.

So while we did benefit from improvements in deposit service charges as well as the elimination of IA amortization, decreases in our potentially unsustainable items that we noted last quarter kept our reported fees flat.

We expect flat to modest growth in noninterest income during the quarter.

Also, as John mentioned earlier, we were successful in completing the First NBC cost saves in the quarter with operating expenses down $6.6 million or 4% quarter-over-quarter.

This decrease is related to the elimination of the remaining First NBC nonpermanent expenses of $6.7 million that we detailed last quarter.

So we had [reductions in] personnel, occupancy and equipment, data processing and advertising, and all of those reductions were related to the removal of First NBC's nonpermanent costs.

Also, ORE expense of about $200,000 this quarter returned to a more normal level as well as amortization of intangibles that was up slightly quarter-over-quarter.

Going forward, we do believe the third quarter is a good base to use for expenses, and we are guiding to flat to slightly up expenses in the fourth quarter.

One last reminder before I wrap up.

The tax rate for the quarter was 26%.

As previously disclosed, we expect our effective tax rate in the fourth quarter to remain between 21% and 22%, due mostly to the change in accounting treatment for the stock compensation and the vesting of awards as November is typically our largest grant investing month.

At this point, I'll turn the call back over to John.

I think we just go straight to questions.

(Operator Instructions) And our first question comes from Brad Milsaps with Sandler O'Neill.

Wanted to follow up on the loan growth.

You guys had maybe commented during the quarter that you're maybe concerned about higher paydowns or not being able to hit your target, but it turns out you guys did much better.

And it looks like you even kind of raised guidance if I look at, in totality, the back half of the year.

Just kind of curious what changed.

Is it something you saw from your borrowers or just maybe the stars just kind of aligned and you just did better than you thought.

But just kind of any additional color there on kind of the change and what you saw during the quarter.

That's a fair question, Brad, and this is John.

When we did this call a quarter ago and then emphasized sequent opportunities, we talked about the desire to have continued energy reductions to get down closer to that 5% in concentration.

We expected some paydowns.

Several clients had contracts to sell.

All those things happened pretty much as projected.

The bottom line is we had a lot of hustle from the banker team to try to overcome that and overcome it with granular loans, and they were able to do that.

So there was no real magic silver bullet to it, just an awful lot of good production that allowed us to compensate.

Brad, this is Mike.

Just to add to that.

You'll note that we also had pretty good mortgage production this quarter, and about $100 million of our growth have been related to the mortgage book.

Not really expecting that to continue at that levels going forward, but we're certainly pleased to get a growth at -- in the third quarter.

Okay.

And maybe just one follow-up, Mike.

On the balance sheet, in general, are you pretty much finished with all the repositioning you wanted to do from FNBC?

Do you kind of have that set up pretty much how you want it going forward?

Are there other moves that you guys are planning kind of from a balance sheet management perspective?

Yes, great question.

And no, there's nothing specific that I can think of or is on our list right now in terms of repositioning the balance sheet.

But when I made the comment earlier about the First NBC transaction being done and behind us, that, that really was a call-out to those kinds of things as well as the achievement of the cost synergies and a full reflection of both transactions in the balance sheet -- on the balance sheet and in the income statement.

So no, nothing that I can think of right off.

And our next question comes from Ebrahim Poonawala from Bank of America.

I just wanted to touch upon, John, in terms of expense outlook.

I mean, I know you guys just called for flat to higher, but I think expenses has been a focus over the last few months for you guys.

And I'm just wondering, as we sort of think about the one branding in the first half of next year, have you already bettered your efficiency guidance?

Like, if you can talk about in terms of is there further operating leverage and should we see that efficiency ratio potentially move below 55% as we move into next year?

Or should we be thinking about expense growth to pick up as you go through this one branding in the first half of next year?

Just any framework around that would be helpful.

Sure, Ebrahim.

This is Mike.

So I'll start with a few comments, and John can certainly follow up.

But yes, first and foremost, we're thrilled to have gotten the First NBC cost synergies kind of behind us a little bit ahead of schedule.

Certainly, that was something that we've been working on really from the get-go to get those things done and behind us again as soon as possible.

So we're very pleased to have achieved that this quarter.

And as much as anything else, it does help to, I think, simplify maybe how people look at our expense base a little bit.

And by that, I mean, it puts us in a position where we can tell you guys that the third quarter expense base is really a good quarter to use as a base to kind of grow from.

Certainly, doesn't mean that we're done with looking at ways that we can be more effective and efficient with respect to expenses, that will continue.

That's something that's been institutionalized here, I think, for a long period of time.

So we're going to continue working in those kinds of things.

As far as the efficiency ratio, again, we're thrilled to be at 57.5% and absolutely believe and intend to keep the efficiency ratio in that range kind of going forward.

Now we haven't talked about any guidance for 2018, and I think we've separately shared with folks that that's something that we plan to discuss and give a fair amount of detail around when we release earnings next quarter.

So I think we'll save any kind of 2018 guidance for that period of time.

Is that helpful?

That's helpful.

I'm just trying to understand, I guess, should we expect any significant ramp-up because of the branding strategy going through next year?

Or should expenses -- and I appreciate you're going to give more guidance, I guess, in January.

But should we expect, outside of that expenses, to essentially grow at kind of a normal rate of inflation and some growth strategies, et cetera?

Yes.

I'm sorry, I didn't address that part of your question.

Sorry about that.

But yes, the short story is -- or the short answer is, as we look forward, there's nothing that we see that would cause our expense base to grow at any kind of outsized manner going forward.

So the very rough guidance would be kind of a more normalized level of expenses going forward.

Now specifically related to the name change and that announcement that was in the release, certainly, we'll have some onetime costs, I think, related to the name change when that does occur next year and that will be in the form of write-offs or signage and things of that nature, old signage, as well as things that will expense kind of on a onetime basis related to the rollout of the new brand.

Kind of on an ongoing basis, the delta would be -- the amortization related to the new signage, which would be a slight increase to our expense base, but nothing that I would say would cause us to have an outside expense growth going forward.

And Ebrahim, this is John.

I'll add to that.

A number of years ago, even though we continue to operate both the Hancock and Whitney brands, we did a full consolidation of the back office, so there's not really 2 separate sets of bank overhead.

We captured those synergies several years back.

So this is really about clarity and simplicity, eliminating the awkwardness of dealing with both brands.

And there -- I'm sure they'll be some efficiency gains there, but we haven't really called out any dollar amounts around those yet.

Got it.

That's helpful.

And just on a separate topic around capital.

So I recognize you have 20 more basis points to get to your target.

I think once you get there, John, if you could remind us in terms of your capital deployment priorities outside of organic growth, in terms of, one, the last time you raised the dividend was, I think, back in 2006.

Is that something that is being discussed?

Or should we expect anything on that front?

And then outside of that, I think you've been more vocal about wanting to do more M&A.

Just would like to sort of size that in terms of what are you looking at in terms of the size, markets.

Would appreciate any color on that.

I'll start, Ebrahim.

This is John, and Mike can add color.

I'll try to take them in a little bit different order than you asked.

In terms of priorities, obviously, our first and foremost priority is always organic growth.

And certainly, at the pace we're adding capital, we have the capacity for organic growth behind that acquisitive growth would certainly be attractive to us.

But just like we did with First NBC, what we're looking for in a transaction is to have a moderate to low risk that are of a size and in businesses that we're already involved in such that we can get a reasonable return without too much dilution.

So those we have to be quite selective about, and we're actively having those conversations.

In terms of dividend treatment, Mike, would you like to step into that?

Yes, John.

Thank you.

And certainly, organic -- funding organic growth is really the primary focus of capital and how we deploy capital, how do we get our TCE back to the 8% level.

After that, in terms of the dividend, it really is focusing on keeping the dividend payout ratio between 30% and 40%.

So at the point it drops below 30%, that would be a signal that certainly we might consider something like an adjustment to the dividend.

And then after that, of course, we'd be deploying capital toward M&A opportunity.

So in a nutshell, that's really how we kind of think about capital.

And our next question comes from Emlen Harmon from JMP Securities.

Good to hear that there's limited impacts from a credit perspective from some of those hurricane-impacted markets.

Have you guys had the chance to look at just kind of what loan growth was out of those impacted markets versus kind of what it's been historically this quarter?

And then would just kind of be curious how you're thinking about approaching kind of redevelopment opportunities that may come out some of those markets.

Well, that's a good question.

And we had a lot of experience after Katrina and Rita to call on, and so a little bit of my answer is going to be based on what that experience was back in 2005 and '06.

But initially, it's a negative impact in terms of growth because you have paydowns of credits from insurance proceeds.

And frankly, there's just some distractions there while folks are getting back to their normal daily routines.

And so initially, the impact is a little bit of shrinkage.

That hasn't been any different this time than it was last time.

And then after that, as redevelopment occurs, you begin to have a little bit more pronounced productivity.

I will show that -- I will share, Nate, which sort of in the middle where the core markets were, was really a de minimis hurricane.

So there really wasn't a lot of damage to create a big set of paydowns, nor to have a big chunk of growth activity afterwards.

So it's really more in the bookends in Florida and in Texas where the aftereffects of Harvey and Irma will be felt.

Regrettably, we don't have as large a market share there as we have in the center part of the company, but we expect to compete aggressively for those deals.

So we would -- we're -- have a good rosy outlook for the bookends of our franchise, but it's too early to try to share any numbers.

And perhaps, we'll be able to talk about that more at the end of the fourth quarter.

Does that help?

Great.

That's helpful.

And then I did just notice the nonaccruals in the nonenergy portfolio increased by about $25 million, so obviously coming off a low base.

But would just kind of be curious in terms of number of credits there, any particular industries or factors that drove the action there?

Sure.

Sam, do you want to take that one?

Sure, I'd be glad to.

And that was an accurate assessment.

It's coming off a low base, so obviously moved sort of shy in there.

But no central theme there in terms of the industry or locale or geography or anything like that.

It's just the typical sort of bumps up and down that you -- we would typically see in the portfolio.

So we had a contractor in one case and we had a food service, hospitality, client.

Those are 2 big drivers of that move in nonaccruals.

But again, we're continuing to assess and work a -- development our strategy there.

So we'll stay apprised there but nothing systemic that is creating any concern for us.

Emlen, this is John.

I'll harken back to your first question just for one moment.

If you were headed towards was the outperformance in loan growth related to buildup of credit in the affected storm markets, the answer to that is no.

It was simply if you look at the loan pipeline, our pull-through rate was much better than we expected and that was really the bigger basis for the loan growth.

It really wasn't related to the storms.

No, I got you.

Yes, I was just thinking that maybe that was the kind of an incremental headwind for you guys that could tail off for future quarters or so.

It's a little bit of a headwind.

I mean, that's a fair characterization.

But again, I think we'll probably going to be able to manage through that.

And our next question comes from Matt Olney from Stephens.

Wanted to ask more about deposit costs.

And obviously, in the third quarter, it was impacted for you guys with the First NBC deal.

Can you give us some more color on what you're seeing on deposit costs, excluding FNBC in 3Q?

Sure, Matt.

So yes, our deposit costs -- well, our cost of funds overall was up 4 basis points quarter-over-quarter.

And really, the drivers there were a full quarter's impact of the higher First NBC rates as well as just higher rates overall.

Really, kind of a little bit of a headwind coming from the recent -- the most recent Fed rate hike.

So going forward, for the most part, we would expect, and again, this is absent any big changes in the interest rate environment, we would expect our deposit cost to be fairly stable from this point forward.

The biggest factor out there, certainly, is on an additional rate hike potentially in December.

That probability kind of was up and down a little bit, so we'll see if that happens.

Overall, though, if we do get another rate hike in December, I would expect our deposit betas to again kind of inch up a little bit and begin to approach something that's normal -- or more normal for us.

Okay, that's helpful.

And just to clarify, Mike.

It sounds like you guys didn't pull apart the deposit cost in 3Q to see what the actual stand-alone or legacy Hancock impact deposit costs were in 3Q.

Yes, we didn't report that or we didn't disclose that, but the major part of what happened certainly was the additional First NBC deposits as well as the rate hike that happened in June.

But we haven't really given any kind of information about how many basis points were related to each.

Okay, that's helpful.

And then switching gears.

I appreciate the commentary on the effective tax rate for the fourth quarter.

I'm trying to understand if there was something unusual about the 2007 tax rate that -- or '17 tax rate that may not continue in 2018.

Or can I just assume that current level in the fourth quarter may continue for a few more quarters into '18?

Well, the -- no, nothing is different that I can think of right now that would impact the effective tax rate year-over-year.

We will continue to have a little bit of seasonality quarter-over-quarter, depending on the divesting of stock-based compensation and things of that nature.

So overall, again, we've given guidance that the tax rate should go from what it was in the third quarter, the 26%, to somewhere between 21% and 22% in the fourth quarter.

But I would expect that to go up a little bit as we go into the first quarter.

So again, we will give guidance around what we expect overall for the tax rate in 2018 next quarter and then also try to remind folks of this new factor related to, let's just call it, seasonality of the tax rate quarter-over-quarter.

And our next question comes from David Feaster with Raymond James.

Just want to follow up on the deposit question.

Could you just talk about the competitive environment for the low-cost core deposits in your markets and, I guess, what your expectation is for stable deposit costs?

Do you think that you can continue to expand your core NIM even without additional rate hikes?

This is John.

I'll take the account question, and then Mike can handle the NIM and the yield question.

I think the best way to answer it was to use the word you used.

It's competitive.

It just -- all deposits are delightful for us all as banks to have and we've enjoyed the best sales effectiveness in terms of account growth those last 4, 5 quarters as we've ever had.

And so our ability to add deposit relationships across the various sectors that are important to us is good and improving.

The elimination of the gap we had in our digital banking offerings will be closed this quarter.

In fact, this weekend, half of the franchise converts to the digital banking platform.

And then in a little less than a month, the other half will convert.

That should assist us with account retention.

But as you mentioned, it's really competitive.

So we'll continue to do whatever we have to do to ensure that from a service perspective, we're extremely competitive, and from an operating perspective, we don't have any significant gaps.

And so my expectation is that we continue and improve the pace of net account growth in the -- both the near and the long term.

Mike, do you want to talk about...

Yes, so the introduction to the digital platform is important and significant for our company.

So that's something that we believe will be very helpful.

And just one last word on the competitiveness of the rate environment.

It's competitive, but it's always been competitive, and there really hasn't been, I would say, any significant change in the level of competition we have for deposits and using deposit rates.

So that's something that's out there that we and every other bank deal with really on a day-to-day basis.

So just looking forward again, as I mentioned in the previous question, as best we can tell, what we see going forward in the fourth quarter is an opportunity to keep our deposit rates relatively stable.

And certainly, the dynamics of growth in our balance sheet and how we fund our loan growth and other uses of liabilities is something that plays into that.

But again, based on where we are right now, I think we have a good opportunity to keep our deposit costs relatively flat and/or stable, again, absent any kind of change in the rate environment.

As far as the NIM is concerned, again, the guidance that we've given for the quarter is really flattish, a flattish net interest margin.

Certainly, we have some of the headwinds that we experienced in the third quarter.

We mentioned the interest reversals in that $1.4 million and then the higher premium amortization we had in the bond portfolio of $1.6 million.

So those were not insignificant items.

And going forward into the fourth quarter, we don't see those items really return.

I don't think premium amortization is going to stop and go the other way, but I don't think we're going to have, again, absent a big change in the 10-year treasury rate, I don't think we're going to have another big increase in premium amortization and support.

So mix all that together with the loan growth that we're looking for and expecting and the yields and the granularity that comes on the balance sheet, what we see right now really is kind of a flattish NIM maybe with an insignificant opportunity to increase that just a little bit.

I hope that's helpful.

That's great color.

And just following -- to talk about fee income a little bit.

It was a bit weaker than we had thought, notably on the trust fees and insurance segments guidance.

You're looking for some modest growth in fee income next quarter.

Could you just give us your thoughts on the puts and takes of where you expect growth going forward?

And what's you're most excited about as we head into 2018?

This is John.

Thanks for the question.

Well, if you remember, second quarter was a really outstanding quarter for fee income.

And at that time, we disclosed that the fee income for the overall quarter had several categories that really the stars lined up and we had outperformance in virtually every category across the board for fees.

And we did our best to call out those areas that were potentially unsustainable.

So as we went into the third quarter, several of those actually did come through again, a couple did.

And as expected and as a result, we had a slight decrease but still to a very good fee income number.

So we viewed it as a little better than in line with our expectations for the quarter.

On a going-forward basis, flat to slightly up would be, I think, the best way to characterize our short-term expectations.

And what's happening there, you mentioned several sectors, this quarter, service charges on deposit through several initiatives really improved.

That covered some of the weakness that we didn't expect to repeat from last quarter, and that should continue.

Mortgage applications have declined across our footprint, and the available number of homes for sale and inventory continues to be very tight.

So a lot of the mortgage we've been doing, as Mike alluded to, early in the loan growth question, has come in mortgage, primarily the construction -- onetime construction close products.

And that's going to the ease down, we think, a little bit as we get into the colder parts of the year.

So the overall mortgage number, we think, is more flattish than we'd like.

And wealth management, somewhat flat.

We expect that to begin to improve late next year, and we expect card income of all types to continue to improve at what's been a very nice handsome rate.

And inside the card, that's essentially merchant and purchase cards from a business product.

Make sense?

Absolutely.

This is Mike.

Just one other big picture thought related to fee income.

So again, quarter-over-quarter, we're rolling down about $400,000, and there's a slide in the IR deck, I think it's Slide 15, that gives a pretty good amount of detail on kind of the ins and outs of categories that were up and the categories that were down.

And for the most part, if you look at the categories that were down, anything that would amount to anything -- a significant level, most of the reasons for those are [at par] that were off from highs in the previous quarter, or items, again, as John indicated that we called out as potentially unsustainable.

So that more than anything else is the reason we're kind of guiding to flat to maybe slightly up fees.

Seasonally, the fourth quarter tends to be a little bit better quarter for us in terms of fee income.

And then certainly, many of these items are pretty hard to predict in terms of timing.

Could happen to reaffirm in the fourth quarter.

Yes, the categories that we considered as potentially unsustainable last quarter were those that are very chunky.

They're single transaction fees, in many cases, of several hundred thousand dollars of pop, and so that makes it a little difficult to predict.

But it's good money, and it's money we're focused on getting.

So I guess, probably the best way to wrap up, Mike, would be to say we continue to count on card revenue of all types.

We think mortgage and wealth will be relatively flat for the next near term.

And we'll talk about year-over-year posture when we get to the end of this quarter.

And our next question comes from Nick Grant from KBW.

So quickly following up on some of the questions on loan growth.

I mean, you had a really strong 3Q.

It sounds like a great pipeline for 4Q.

I know in the past you've talked about pulling back on some SNC.

Was any of the 3Q growth SNC driven?

Or was that all core?

No, it was -- our SNCs were actually down.

I'll try to swag the numbers a little bit because I'm not sure I have them exactly correct in my mind.

But the $97 million that we had down in energy, about $75 million or so of that was related to energy or SNCs, SNCs and energy.

There was -- were additional SNCs above that, that also were declines.

So the growth that we had for this quarter was essentially with a pullback of SNCs just like we expected to have.

So no SNC growth this quarter.

And you mentioned the pipeline for next quarter.

I would say the same thing for next quarter that I said a quarter ago.

We're trying to have as low an energy concentration as we can, given that we're still moving through the energy cycle.

I'd like to see that percentage drawn down some.

And so as a result, that's still a headwind to loan growth.

So that, coupled with paydowns and probably a little bit further paydown in the storm-affected markets, it means it's a tough headwind for us to overcome, but every quarter, we seem to figure out a way to get past that through a lot of good hustle and good pipeline pull-through, right?

So we're going to endeavor to do the same thing in the fourth that we did in the third, which is cover our energy posture, our SNC posture with granular growth.

To the extent we can do that, we'd be real pleased.

Okay.

Great.

And then quickly on the NIM.

I mean, what keeps you from having higher NIM guidance here?

I mean, it sounds like -- I mean, well, I guess, premium amortization and the NPL reversal weighed on the margin by 5 bps.

You sound really optimistic on a potential for stable deposit cost.

So I guess, what keeps you from being higher than a flat to slightly up on the guidance?

Well, if we got another rate hike early in the quarter, that would certainly be helpful.

But I think, overall, that it really is the things that we kind of talked about.

And if you roll all that together in, again, it really does kind of spell for us a flattish NIM, again, with an opportunity maybe to be up a little bit.

And Nick, this is John.

I'll add a little bit to that.

There is seasonality in many parts of our book.

Fourth quarter, generally speaking, we typically have a fair amount of draws that occur in the fourth quarter for several parts of our business that draw down late in the year and then pay down in the earlier part of the year.

Some of that is ag and sugarcane and other things like that, but those are very large operating lines that are maybe a little more thinly priced than others.

So while typically fourth quarter is a decent loan growth quarter, it does put a little offsetting pressure on the NIM because of where some of those draws occur.

So I mean, just a lot of pieces moving around that are inside that guidance.

No one thing drives it all.

So when we put that all together, that leads us to the flattish suggestion for next quarter.

Is that helpful?

Yes, it's great.

And our next question comes from Casey Haire with Jefferies.

Just quickly following up, I guess, on the premium ams specifically.

Does the NIM guide contemplate -- does it assume that 3 bp drag persists going forward?

Just curious given we've gotten somewhat of a steeper curve.

And at what point -- what kind of 10-year do you need to see to see sort of relief in that premium am drag?

Well, any relief in the 10-year is certainly helpful in terms of our prepayment speed.

So that certainly would help if we got an increase there.

But again, going forward, we had to drop our -- looking in the third quarter, we had to drop, well, the increased premium amortization of $1.6 million.

What we see in the fourth quarter is basically the opportunity to not have an increase of that magnitude.

So we're not expecting right now a significant pullback in our premium amortization.

But again, that's going to depend upon prepayments fees, which generally are tied to the 10-year treasury.

And our next question comes from Christopher Marinac with FIG Partners.

I want to ask a question back to Sam or Mike related to credit quality.

When you see the growth of the allowance, excluding energy, how much of that is related to the minor increase in the classifieds versus just general growth?

I was just curious on how we should sort of think of that as a general reserve build separate from any movement on the classifieds?

So we look at our nonenergy ALLL as a percentage of loans.

We actually were able to increase it by 1 basis point quarter-over-quarter, so it stands at about 81 basis points of total loans.

That's about $143 million, again, nonenergy ALLL.

And certainly, the way that we build our ALLL takes into consideration certainly the change in asset quality, as evidenced by NPLs or nonaccruals that are going up or classifieds that are going up.

So that probably is a little bit bigger component driving the increase in overall loan growth at this point.

So Mike, if you were fortunate to see classifieds sort of flat in a given quarter, that may give you flexibility, because it does seem like it's a conservative look at just relative to trying to relate that change in allowance to the change in loan growth.

Yes, it would, it would certainly, but I don't think we're, per se, interested in reducing our ALLL really on the energy side or the nonenergy side.

But certainly, if we do are in a position to have a little bit better asset quality, as evidenced by NPLs or non-accruals, that's certainly helpful as it gives us flexibility to consider those kinds of things.

Okay.

Great.

That's very helpful.

And just a quick sundry item on taxes.

I know you talked about the fourth quarter guidance on taxes.

Is there any reason that the taxes would be materially different next year, just in terms of how the stock option expense will play out?

No, not if you look at it starting in individual quarter basis.

So if you compare the first quarter of '18 to first quarter '17, it shouldn't be that materially different.

And the same applies for each subsequent quarter.

And I am not showing any further questions at this time.

I would now like to turn the call back over to John Hairston for any closing remarks.

Thanks, Daniel.

And thanks for moderating the call today.

And thanks to everyone for your interest.

We appreciate you calling in today.

We look forward to visiting with you in the near future.

Have a great day.

Ladies and gentlemen, thank you for your participating in today's conference.

This does conclude today's program, and you may all disconnect.

Everyone, have a wonderful day.